Here's what they are thinking: Currently, the vast majority of public debt is in short-term notes at near-zero rates. If the cost of federal borrowing does up to 5%, the debt service goes up to $600 billion ($1 trillion if you don't cheat the Social Security Trust Fund and such). This will have a bad effect on the budget.

".... But only people with very good credit scores can get loans at the moment". This is not a bug, this is a feature.

Only people with very good credit scores SHOULD be able to get loans, at any time. The majority of problems with the previous credit regime, where my dog could get a loan because he didn't have to do anything except show up and sign the paperwork (I had to help him with the signature; he has trouble with pens), revolved around unqualified borrowers getting big mortgages.

We know the politics behind those problems, and now that the financial industry has been burned so badly, they are returning to sane business practices, i.e. don't lend money to people who objectively can't pay it back. The chances of another financial recession are greatly lessened thereby, which is good news for all of us.

Politics aside, what killed us in 2008 was the crazy interlock of repurchase agreements and mortgage-backed securities. It wasn't the loans so much, it was the leverage. A 10% haircut on all the mortgages in the USA might cost $1 trillion (and not all loans are bad). But when you mix all the paper together and then tie several levels of derivatives to them, it's a real mess to unravel. Hopefully we aren't repeating THAT mistake.

Casey M - see my comment below. While the exact same mistake is not being repeated (in the US anyway...China is another story), the details are different but the structural problem of too much leverage remains. It is more in hedge funds and private equity this cycle than the big banks, but it is there

As someone who has been waiting for inflation I'm coming to believe it won't.

There is a theory bouncing around on the economic fringe that so much is bought on credit that the money supply in terms of figuring demand and related issues like inflation isn't just M1/2/etc but includes the credit supply equivalent. Despite all the printing by the Fed the sum of money plus credit is still shrinking.

This is not a mainstream idea and I'm still iffy about it. However, it does explain both the lack of inflation. We can pump money in but if it is all used to deleverage instead of purchase things it doesn't go into demand so prices are flat.

The contraction of private sector debt has greatly offset the inflationary tendencies of what the federal reserve and federal gooberment are doing. But as I see it that offsetting effect is about played out. Inflation figures including food and energy, the sectors that typically show inflation first, are already showing the early signs of severe trouble.

If people are waiting for BLS stats to show inflation we'll be in a full blown crisis by then, as the stats are designed not to show inflation. This was explicitly stated as the goals of the Greenspan and Boskin commissions.

I happily use a variety of discounters although I'm not a fan of the spot price of gold or silver (too volatile to be a good discounter*).

BLS does have some good measures but top line inflation reported in the press is not one. However, CPI is flawed in ways that having not to do with cooking the books, mainly the inclusion of rapidly replaced by new tech finished good. A true CPI has to work with them but that lowers the value as a general discounter.

Shadow stats is also a good source.

Personally, I'd like a time weighted average of a variety of low level commodities but haven't taken the time to roll my own. Wheat, rice, soy, beef, chicken, crude, gasoline, LNG, zinc, iron, and copper would be a good start...365 day rolling average of those prices then weight them so they equally contribute to a 100 baseline on your base date.

*If you use spot gold Obama has cut real government spending a couple of years much more than the GOP even pretended to do. I don't buy it.

I'm willing to bet the public doesn't even remember this little detail. To this day one can see moron commenters on various other sites still making references to the "Bush economy" when they seek to assign blame for the events of 2008 and the resulting fallout.

Here's what they are thinking: Currently, the vast majority of public debt is in short-term notes at near-zero rates. If the cost of federal borrowing does up to 5%, the debt service goes up to $600 billion ($1 trillion if you don't cheat the Social Security Trust Fund and such). This will have a bad effect on the budget.

FHA just solved the access problem MM speaks of. All this easy money is now available to people who have poor credit scores with no more than three bad credit incidents. Serious, we mean it, no more than three!

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